Airtel sells 10.3% stake in Bharti Infratel for $951.6 million

Kolkata|Mumbai: Bharti Airtel sold 10.3% of its tower arm to a consortium of KKR and Canada Pension Plan Investment Board (CPPIB) to slash some of its huge debt and gird up for bruising competition in the wake of Reliance Jio's rock-bottom entry tariffs.

The company concluded "the secondary sale of over 190 million shares of its subsidiary, Bharti Infratel, to a consortium of funds advised by KKR and CPPIB for a total consideration of 6,193.9 crore ($952 million), or 325 per share", the company said in a media release on Tuesday. With the sale, Airtel's stake in Bharti Infratel will drop to 61.7%.

Bharti chairman Sunil Mittal said this "investment by a consortium of marquee long-term investors underlines the confidence of global investors in India's growth story and the government's Digital India initiative in particular". The long-term investment horizon of the investors aligns well with "the capital needs and business cycles of Bharti Infratel", he added.

This is KKR's second investment in Bharti Infratel. It had previously invested in Airtel's tower arm with Goldman Sachs and Temasek in 2008-2015, then reportedly sold its stake two years ago for $140 million. Tuesday's announcement marks what will be one of the largest private equity foreign direct investments in the country.

Bharti Airtel will primarily use the deal sale proceeds "to reduce its debt", the company said. Airtel's consolidated net debt stood at $14.34 billion in the fiscal third-quarter ended December 2016.

Brokerage Morgan Stanley said the stake sale in Infratel will give "Airtel flexibility to step up its capex for the India wireless business to expand its data network coverage and capacity to counter Jio".

The Infratel stake sale signalled the "start of consolidation" in the tower industry space, an analyst said. "With consolidation there will be operators selling stake to reduce debt or use the cash for their mobility business."

In April last year, American Tower Corp. bought a 51% stake in Viom Networks for nearly Rs6,000 crore.

Of late, Idea Cellular and Vodafone India have been reported to be looking to sell their telecom towers besides their stakes in Indus Towers to strengthen their balance sheets. This comes as the broader telecom industry is in the grip of a wave of consolidation, the biggest of which is the proposed merger of Vodafone India and Idea Cellular, which will create India's biggest phone company, overtaking Bharti Airtel.

Shares in Bharti Infratel hit an intra-day high of Rs 325 before ending at Rs 318.75 on the BSE on Tuesday, up 2%. Parent Airtel rose marginally by 0.61% to close at Rs 340.65. Citi was an advisor to the share sale.

Earlier this month, Bharti Airtel scrapped plans to sell a controlling stake in its tower arm. It had instead resolved to transfer up to 400 million shares to wholly-owned unit Nettle Infrastructure Investments in tranches with the aim of selling the stake, partly or fully, when valuations got better.

Last month, ET had reported that Airtel's talks to sell a controlling stake in Infratel to the KKR-CPPIB consortium had hit a snag over valuation, with the tower firm's shares plunging after news of the Vodafone-Idea Cellular merger. Markets perceived the merger would lead to rationalisation of tenancies and sites, reducing the attractiveness of tower companies like Bharti Infratel.

Bharti Infratel plunged more than 10% on February 1, just two days after the news of the Vodafone-Idea merger talks became public. Thereafter, the stock crashed to Rs 284.55 in late February, following which it recovered some ground.

Bharti Infratel also owns 42% of India's largest tower firm, Indus Towers, a three-way joint venture of Bharti, Vodafone and Idea Cellular. Its consolidated tower base, including its share in Indus Towers, stood at 90,255 towers at the end of 2016. The tower firm derives roughly 85% of its revenue from the big three telcos - Airtel, Vodafone India and Idea.